I suggested Friday that “incredulous” was probably too strong a word for how market participants feel about the ostensibly counterintuitive action in rates.
Incredulity often implies vigor and frustration, whereas right now, we’re in a somnolent June drift. If incredulous isn’t quite right, “surprised” might work when it comes to characterizing views around this week’s bond rally juxtaposed as it was against another hot CPI report.
Obviously, “transitory” components explained a good portion of the overall jump in prices, but let’s just say that if yields had ended the week higher, it wouldn’t have been difficult for journalists to write the copy.
One person who’s “surprised” is Larry Summers, who works in the gig economy now as a paid contributor to Bloomberg. That “job” entails regaling David Westin with ominous predictions about the ramifications of Joe Biden’s stimulus plan every other week.
“I didn’t anticipate the kind of decline in nominal yields that we’ve seen,” Summers mused. “I’m surprised. I would have expected that yields would have risen more.”
Well, Larry, you would have been wrong — although “wrong” isn’t a word Summers is particularly fond of when it applies to him.
He went on to chastise the Fed, whose persistence in accommodation in the face of a “booming” economy “defies good sense,” according to Summers.
Those remarks echoed Stan Druckenmiller who, in an email to CNBC’s Joe Kernen on Thursday, said “the market is not speaking.” That came as “mute” markets shrugged off the hot inflation print. Druckenmiller then accused the Fed of “canceling market signals.” (One of CNBC’s favorite morning shticks involves billionaires sending Kernen mail so he can treat it like “breaking news” on television.)
From a 30,000-foot perspective (i.e., stepping outside of the debate around how rates and equities “should” have reacted to a single CPI print), it’s not so much that Summers and Druckenmiller are “wrong.” But central banks have been in the business of smothering price discovery and underwriting all manifestations of short vol / carry at least since the Robinhood crowd was sitting on the living room floor, consulting with a stuffed giraffe on the logistics of placing various blocks into the correctly shaped slots on a colorful plastic table.
Druckenmiller knows that better than anyone on Earth. He’s not saying anything new. At this point, he’s just a source of pseudo-warnings, clickbait and headline-friendly soundbites dressed up as “wisdom.” Druckenmiller epitomizes “Hall of Famer.” But let’s be honest — he’s in the twilight of his life and career, and with nothing left to do other than play around with his own billions, he’s emailing Joe Kernen.
Summers, for all the derision he gets, is actually engaged in a more urgent debate. You might have a hard time taking him seriously. His ongoing critique of efforts to tackle problems associated with his own theories is rife with irony and admits of countless “Of all people!” jokes. But an academic discussion about the interplay between fiscal and monetary policy carried on with at least a veneer of intellectual earnestness is, I’d argue, infinitely more useful than Druckenmiller emailing a cartoon character to complain about Fed policy for the umpteenth time.
And while we’re being brutally honest, note that what these heavyweights say is totally irrelevant for market participants on any kind of near-term time horizon. For tactical purposes, it’s completely useless. (Oh, policymakers murdered price discovery? Thanks, Stan. I was wondering why BTPs are at 74bps. What’s that, Larry? Sometimes the best laid plans of policymakers go awry? Appreciate the reminder. And you should know.)
Have you ever heard of Alicia Levine? No? Me neither. Apparently, she’s chief strategist at BNY Mellon Investment Management.
Her CV is impressive, so maybe I should know her. Her official bio gleefully notes that “Alicia is a regular on-the-record source, live broadcast commentator and breaking news analyst for a variety of media outlets including Associated Press, Barron’s, Bloomberg, CNBC, CNN, Financial Times, Fox Business News, New York Times, Reuters, Wall Street Journal, Washington Post, and Yahoo! Finance.”
A while back, I made the mistake of asking, in a tweet, if Karen Finerman is someone I should know after she responded to some off-the-cuff remark I made about what Jamie Dimon might be like as president. One of her fans was irritated that I wasn’t aware of her existence, and she seemed somewhat vexed too (“I don’t know how I got in your TL. Good luck to you,” she told me.)
Anyway, the point is that irrespective of whether Alicia Levine is like Karen Finerman (i.e., someone other people know and assume I should know too), I’m confident that neither Levine nor Finerman is as famous as Summers and Druckenmiller, and yet, in the wake of May’s CPI report, Levine managed to offer something far more useful for market participants than those two venerated legends.
“The Fed has convinced everybody they’re going to roll with it,” Levine told Bloomberg TV and Radio Friday. “A mild inflationary environment is actually great for equities, it’s great for businesses, it’s great for wages and you don’t have a Fed that’s going to come and kill it all,” she added. “So you’ve got cyclicals going and you’ll have tech going [too].”
There you go. That’s it right there. Whether it’s “right” or not doesn’t really matter. The point is that it’s incisive and useful.
So, forget Summers and Druckenmiller. Just ask someone I’ve never heard of what’s going.
Maybe Finerman had a good take too. I don’t know. Because I blocked her when I discovered she’s a TV personality.
Apparently, I’m the only one in the world who thinks there’s something wildly unnerving about the prospect of being tweeted “at” by someone who, if I were to turn on the right channel, at the right time, might be staring back at me, through the screen, just seconds after sending a tweet my way.
Entertaining and insightful. You are like me an imperfect man. Did you find someone with insight or did you find someone with sufficient anonymity that agrees with you?
One of the material lapses in our current ecosystem is the absence of deep dialogue prior to taking BIG steps. Snackable information (sound bites that help sell sh&t) have become both expected and the norm – we no longer demand dialogue / understanding. Unintended consequences or better alternatives be damned … yet, it seems, every day we each have opp to demand more than snacks.
Oh yea, this blog is not a snack, and if you come here for a snack, sorry ….I find something satisfying about real brain food.
Like they say, we are what we eat, and I too find this diet filling and delicious. 🙂
Or sound bites that spell sh&t.
LOL. All good news for me, as I am “too old” to be a Bond Girl!
Summers is smart but he got the medicine for the GFC wrong back in 2008-9. He was one of the voices that convinced Obama to go lite. Biden is not going to make that mistake and neither is the FOMC. Good for them. Missing in a lot of the analysis is proper risk management thinking. What is the downside of being late in tightening? If it isn’t Lindberg landed late, policymakers know exactly how to fix the problem. Raise taxes, cut spending or tighten monetary policy via short term rates. Speculation and asset bubbles are one downside, but considering the alternatives I will take them. If they tighten too early or fall short of stimulus we get something akin to a weak recovery or even a recession. And given the context of current events that would be tragic and it could kill our democracy. So Biden, Yellen and Powell doing whatever it takes is likely the right choice. Is it going to be perfect or without its downside? No, but it is the best of a bunch of alternatives. Remember they were not handed a good situation- and that is why Trump lost. It is hard for me to understand some of the commentators like Summers, Druckenmiller and the rest to be honest. Maybe they have a viewpoint and are just not that flexible in their views and prescriptions.
They are over confident and think they know exactly how much of each medicine the patient needs. Easy to pontificate when they are not the ones with the responsibility. If the patient deteriorates for lack of enough intervention, they will write OpEds complaining that not enough was done. Either way, they will not suffer unemployment or financial distress. Meanwhile, those who actually have the responsibility will do what makes sense, which is to dose until the patient is well or until adverse effects outweigh the original illness.
H
You said, “But central banks have been in the business of smothering price discovery and underwriting all manifestations of short vol / carry at least since the Robinhood crowd was sitting on the living room floor, consulting with a stuffed giraffe on the logistics of placing various blocks into the correctly shaped slots on a colorful plastic table.” OMG that is just wonderful! Thanks for the belly laugh.
A couple of thoughts. Sharp traders get interested when a market trades in the opposite way the news would indicate. Two, old habits die hard. US treasuries have been a fear index and a hedge against equity risk for a long time. Three. Lacy Hunt and Jef Snider and their ilk are not idiots. They crank out very sincere research. Three, Harley Bassman says the fed wants a nice steep yield curve so lenders will lend and investors like pensions and endowments can get some income. I personally think that just because you can see where we are ultimately going, doesn’t mean you have a good idea what the path looks like. Lastly, the fed and treasury are limited in their freedom of speech: they cannot admit either that they are afraid, or what they are afraid of….
A couple of thoughts. !. Smart traders wake up and pay close attention when a market has an unexpected reaction to a specific piece of news. 2. Lacy Hunt and Jeff Snider and people of their ilk are not idiots. 3. Old habits die hard- the US treasury bond market has been a fear index and a hedge against equity risk for a long time. 4.the Fed and the Treasury do not enjoy freedom of speech- They cannot say they are afriaid, or what they are afraid of….A contrarian thought- Jim Cramer says oil is uninvestible and it takes off Now, Goldman says it might hit $100- was that a sell signal?
Yes, we need real risk/reward discussions and decision makers willing to admit that mistakes happen, backing that with an unbending commitment to change course immediately. History’s rocks are littered with wrecks whose captains couldn’t be wrong. That’s why politicians should never be in charge of managing course.